A bidding war is expected for control of New Zealand Farming Systems Uruguay (NZFSU), whose extensive Uruguayan land assets are considerably undervalued within its share price at present.
While NZSFU has been through troubled times and suffered weather events beyond its control, its land developments and land-banking are not reflected even in its rejuvenatedshare price of 64c, still leaving it an attractive takeover target with shares valued at around 90c.
The share price was buoyed on Monday by a surprise counter takeover offer of 60c a share.
NZFSU slid to a year low of 37c in May.
Craigs Investment Partners broker Peter McIntyre said several disappointing announcements during the past two years meant the share price had been "left trading at a discount for quite some time".
"There's a high possibility this will turn into a bidding war. Olam [International] will more than likely revisit its [55c] offer," Mr McIntyre said.
NZFSU has a total of 31,000ha of land in Uruguay, of which seven farms totalling 13,000ha are spread over three provinces - Rio Negro, Florida and Rocha - with 31 milking sheds.
Its annual report is due out on August 23, as is the first independent report on the first takeover offer.
Singaporean Olam has a $110 million offer on the table at 55c per share, while Uruguayan Union Agriculture Group (UAG) has a $146 million offer tabled, at 60c per share.
However, Olam already has a major advantage with its almost 30% existing stake in NZFSU secured (albeit it must get the 50% shareholder acceptances first to activate completion of the 11.5% PGG-Wrightsons has agreed to sell), while UAG is barely out of the blocks with its existing 1.7% stake.
Both require a minimum 50.1% stake to complete their respective deals.
"The key aspect of these takeovers is the land. It's essentially the same [type] as in Northland and is ideal to apply New Zealand dairying systems to," Mr McIntyre said.
In late August last year, NZFSU reported revenue had doubled and milk production tripled, but it posted a second consecutive operating loss of $US15.6 million ($NZ23.1 million) compared with $US8.8 million the previous year.
Overall, climatic conditions, a 30-year drought in Uruguay, the global credit crunch and falling international commodity prices all conspired against NZSFU, scouring the foundations of its start-up developments, and subsequently lagging share price.
